Coping with the P33 daily wage hike

T’was like a bolt in the blue. For thousands of micro- and small-sized companies, the newly mandated P33 hike in minimum daily wages for Metro Manila was a total surprise, although welcomed by more compassionate employers, albeit with deeper furrows on the brow.

The reality of high inflation – much higher than what the country had been experiencing for many, many years before the pandemic, has truly eroded workers’ standard of living, and the threat of higher poverty levels in the urban setting is all too real.

By the Department of Labor and Employment’s reckoning, about a million minimum wage earners in Metro Manila will be shielded from “undue low pay,” a daily rate that has become direly stretched to below decent living standards because of rising food prices and transportation fares.

This year, economic watchers are sure that the inflation target for the year set by the National Economic Development Authority (NEDA) of a maximum 4.3 percent will not be met, with crude oil prices hovering at $100 a barrel on average for this year, and only easing ever slightly in 2023.

Geopolitics is playing a big hand in prolonging elevated oil prices, and the uncertainty over Russia’s intentions on Ukraine and towards other European countries like Finland and Sweden, which are seen applying for membership in the North Atlantic Alliance or NATO, are weighing heavily.

Thus, the rise in local petroleum product prices has directly applied pressure on the transportation sector to urgently seek higher fares, and their request is expected to be given soon now that DOLE has upped minimum daily wages. With that, the P33 may just be enough to cover for oil-caused inflation.

Discretionary allowances

The wage hike may be something that a million minimum wage earners can be thankful for, but not the rest of the working population in the National Capital Region (NCR), which is estimated at over 15 million. Many workers and employees commute daily from the metro’s far suburbs, and are affected by transportation rate hikes.

Because most are not covered by the mandatory minimum wage order, those employees that have daily wages above the minimum rate have to seek employers’ discretion on wage adjustments. This is part of the labor department’s two-tiered wage system, which critics say have effectively discouraged labor strikes.

Many companies have a labor-management mechanism to address such issues, and barring business difficulties because of the pandemic, would generally be responsive to the needs of workers.

However, many other businesses that are just starting to pick up from a slump may be cash-strapped to match the P33 per day pay hike given exclusively to minimum wage earners. Thus, the pressure to accommodate workers’ higher living expenses may lead to some lay-offs.

In other cases, higher paid workers may agree to hold off any additional pay increases, but with a condition for higher rates when business recovers in the coming months.

A more acceptable mechanism is the granting of temporary allowances, often based on an agreed inflation rate. This mechanism recognizes the situation of workers borne by the extraordinary rise in prices of basic commodities. This often works for workers who just want to have additional income to cover for the short-term increases in their cost of living.

Across-the-board wage hikes have often been seen by businesses as counter-productive, and eventually a burden to the company’s operations. This is the reason why DOLE has instituted the two-tiered wage system: one that manages the minimum wage levels for a few, and the other that encourages voluntary pay adjustments for the rest.

Sink or swim

With the higher costs of inputs, including wages, aggravated by dampened consumer demand, even the healthier micro, small, and medium-sized businesses or MSMEs will see their bottom line at the end of the year severely challenged.

More than ever, businesses in the service and manufacturing sectors will have to decide if they still have the ability to swim and survive, or just sink. Even with the reopening of the economy, many expansion plans may have to be put on hold, especially if the Monetary Board decides to raise interest rates any time soon, and in the process make borrowing more expensive.

MSMEs will need all the help it can get to invigorate their struggling operations because of the pandemic, as well as the disruptions caused by high oil prices, and this includes having sources of low-interest loans to pursue business growth.

Sugar rush

The Philippine economy experienced a sugar rush during the first quarter of 2022 despite the partial lockdowns in January in response to the highly contagious Omicron coronavirus variant. A high percentage of vaccinated individuals in the NCR allowed almost all business sectors to get back to normal come February and March.

The 8.3 percent expansion of the country’s gross domestic product during the period was boosted by a growth of 10.4 percent in industry and 8.6 percent in services. The manufacturing sector ramped up production to refurbish its depleted stock levels, while restaurants, travel, and other recreational businesses benefited from consumers abandoning lockdown restrictions.

The second quarter GDP performance, though, may not be as vigorous. Even with expected help from election spending and higher remittances from overseas workers, Filipinos are starting to take notice of how prices of goods are slowly inching up despite government subsidies.

The extraordinary high oil price levels will eventually find its way to all aspects of our daily living. Soon, the P33 minimum wage hike will not be enough.

Facebook and Twitter

We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us on www.facebook.com/ReyGamboa and follow us on www.twitter.com/ReyGamboa.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.